§ `Paragraph 5 of Schedule 8 to the Finance Act 1973 and paragraph 18 of Schedule 10 to the Finance Act 1980 (certain matters deemed to be restrictions attaching to shares) shall each have effect and shall be deemed always to have had effect as if the reference in those paragraph to any contract, agreement, arrangement or condition did not include a reference to so much of any contract, agreement, arrangement or condition as contains provisions similar in purpose and effect to any of the provisions of the Model Rules set out in the Model Code for Securities Transactions by Directors of Listed Companies issued by the Stock Exchange in April 1981.'.—[Mr. Ridley.]
§ Brought up, and read the First time.
§ Mr. RidleyI beg to move, That the clause be read a Second time.
New clause 47 covers a small point, but it is a relieving provision to remove the possibility of an unintended tax charge in the context of share acquisition schemes for employees. It covers the point that was raised in Committee by the hon. Member for Colne Valley (Mr. Wainwright), although not selected for debate as almost all his best amendments were.
I stress that the new clause does not in any way exempt a company's employees from the insider dealing rules. Those are the subject of Companies Act legislation. It merely removes an anomalous tax effect. In certain circumstances, restrictions—or conditions that can be regarded as restrictions if they are attached to shares held by an employee—give rise to an income tax charge. The main reason is to discourage artificial arrangements under which an employee or director could receive a benefit free of tax. Put at its simplest, his employing company could sell him shares subject to restrictions which would depress their market value. The restrictions could then be 706 removed, increasing the value. The employee would receive the benefit of the increase although he had in fact acquired the shares at market value and thus technically avoided any tax charge.
The Government have recently been advised that the Stock Exchange model code, which sets out the rules that listed companies should follow in relation to insider dealing, should in law be regarded for tax purposes as a restriction on shares if adopted by a company. That is unintended and unjustified, so we have tabled the new clause to remove the possibility of a compay which adopts the Stock Exchange's recommended rules on insider dealing thereby putting its employee shareholders at an unanticipated disadvantage.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.